David Bell: The problem with the future is that there are no 'facts', just predictions

On the eve of the EU referendum, David Bell sorts what we know from what we can only surmise. 
 
Tomorrow, we will vote on whether the UK should leave the EU. This is a momentous decision which will affect both current and future generations living on these islands
 
A recurrent theme has been the lack of “facts” to help voters decide. The problem with the future is that there are no “facts”, just predictions. Although the campaigns might try to persuade us otherwise, no-one knows whether the UK can reduce immigration and cut trade deals, or whether the UK economy will flourish or founder outside the EU. What we can do is to assess the quality of the arguments, making allowance for the track record and the objectivity of those trying to predict the effects of Brexit.
 
As far as Scotland is concerned, as with the UK as a whole, the economic implications of leaving the EU are unknown. However, we do know some facts about the interaction of the Scottish economy with the EU, which may be worth bearing in mind.
 
First, Scotland’s GDP per head is close to the EU average. Income per head in Romania and Latvia is about half of that in Scotland, so Scotland will remain an attractive destination inside or outside the EU. Controlling migration from other EU countries would almost certainly require the establishment of a ’hard‘ border between Northern Ireland and the Irish Republic, which might have implications for Scotland.
 
Scotland’s unemployment rate is well below the EU average, which again makes it an attractive economy for migrants. Historically high levels of migration from other parts of Europe to Scotland during the last decade have not led to higher levels of unemployment. At the aggregate level, there is no evidence that the inflow of migrants has reduced opportunities for natives.
 
At the 2011 Census, EU migrants made up 2.5% of Scotland’s population and 4.4% of the population of England and Wales. Due to their greater numbers, migrants exert more pressure on public services in England and Wales than in Scotland. However, migrants also pay taxes which offset the cost of the public services they use, a point that has been almost absent from the debate. Bottlenecks in public service provision, such as access to school places, may be the result of failing to prioritise areas with high concentration of migrants.
 
Scotland’s export trade is not particularly focused on the EU. Its major single country market is the USA: Scotland exports more than twice as much to the USA than it does to Germany. And export growth to the EU has been negligible since the financial crisis of 2008-09. In contrast, exports to the rest of the world have been growing steadily, but not as fast as Scotland’s exports to the rest of the UK, which account for 64% of Scotland’s exports.
 
Current trading patterns may not necessarily be a good guide to the future, but in the short to medium term, a huge reorientation of trade is unlikely. Scotland will continue to depend on its exports of services (including tourism and finance), of food and drink, and of some high-tech goods. It will also have to comply with the regulations demanded by its export markets, which may include its product, environmental and labour standards. Negotiations may well be lengthy: the prolonged difficulties associated with exporting haggis to the US illustrate the difficulties that UK trade negotiators will face.
 
Lastly, our net contribution. Much has been made of the supposed contribution of £350m per week that the UK pays to the EU. This is a gross figure which does not take into account the £3.8 billion rebate that the UK receives and the £5.1 billion that is spent on farm payments, structural funds and science and technology support. Scotland is now too rich to receive the intensive EU support that it did in the past: most of the structural funds now go to Eastern Europe and Mediterranean countries. Scotland’s net annual payment to the EU, of around £340m is equivalent to 0.2 per cent of Scottish GDP. This implies that on average, Scots pay around £64 per year for EU membership. Even a small decline in exports would offset the cash benefits of not making this contribution to the EU budget.
 
There is almost a complete consensus among economists and external organisations that the short run effects of Brexit will be harmful to the UK economy. Given our trading links to the rest of the UK, there is no reason to believe that Scotland would be isolated from this harm. But these are “predictions” rather than “facts” and economic forecasts are prone to error.
 
Voters must make their choice on Thursday with only partial information on what Brexit will entail. This may help “remain”. Irrespective of the objective arguments, the status quo often prevails in referendums if voters believe messages that the alternative is risky and/or unclear.
 

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David Bell's picture
post by David Bell
University of Stirling
22nd June 2016
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